Charities Are Bracing for a Long, Hard Winter

Charities like City Harvest fear that the financial crisis will affect their ability to raise money. At the organization's 2007 Pre-Thanksgiving Mobile Market, the actor Kevin Bacon volunteers to help with food distribution

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Lehman Brothers CEO Dick Fuld may have helped ignite the financial apocalypse, but consider this: in 2006, through his Kathy and Richard S. Fuld Jr. Family Foundation, Fuld also gave away more than $5 million. The Lehman Brothers Foundation gave another $39 million last year to charity, either directly or by enabling the charitable giving of its workers  many of whom are now unemployed or considerably less secure about their financial futures.

That's bad news for the many nonprofits and smaller foundations that depended on Lehman's largesse. Indeed, as the financial crisis takes down some of the richest houses on Wall Street, the effects will ripple out to the charities that rely on them and serve the poorest in America's big cities and the rest of the world. The stock-market crash has already damaged the endowments of big foundations, universities and hospitals, while charitable giving from ordinary citizens seems to have decreased out of financial fear.

The crisis couldn't come at a worse time: many charities, such as City Harvest, which delivers leftover food from restaurants to the needy in New York City, collect the bulk of their donations during the holiday season, and with unemployment on the rise and 401(k) plans tanking, it's likely to be a blue Christmas. Over the past two years, City Harvest received $100,000 from Lehman alone  one of the charity's Top 5 donors. "We are obviously very concerned," says Jilly Stephens, City Harvest's executive director. "We have the bulk of our fund-raising ahead of us  between November and January we raise nearly 40% of our annual budget  and we don't know what's going to happen."

Worse, a truly global depression will increase the overall need for assistance, even as charities see donations slow and governments reduce foreign-aid budgets. "It's a double whammy," says Patrick Rooney, director of research at the Center on Philanthropy at Indiana University. "These institutions are on the front line, and you just have to feel sorry for them."

It's too soon to say exactly how much giving will be down, but past experience suggests that a recession will hit charities hard. In a report released last month, the Giving USA Foundation found that on average during recessions (defined as two quarters of consecutive decline in the gross domestic product, which hasn't yet happened), charitable giving declines 1%. That might not sound too bad, but keep in mind that during nonrecessionary years, charitable giving in the U.S. has increased 4.3%  which means a recession represents a more than 5% swing in the other direction. And it's gotten even worse than that: during the relatively severe downturn of 1974, giving declined 5.4%. Given that the current crisis seems unprecedented in its scope, no one is willing to predict just how bad things might get for the nonprofit sector. "The ramifications are absolutely going to be huge," says Gordon J. Campbell, CEO and president of United Way of New York City.

Nonprofits have long sensed trouble. In its most recent Philanthropic Giving Index  sort of a Consumer Confidence Index for donations  the Center on Philanthropy reported in July that nonprofits were feeling less optimistic than they had six months ago. And that was before Lehman, before AIG, before the S&P 500 Index dove off a cliff. Gregory Boroff, senior vice president for external relations at the New York Food Bank, notes that his organization's donations from direct mailings is down 27% from the same time last year. Like City Harvest, the New York Food Bank receives the bulk of its donations during the holidays, and Boroff is nervous about December. "If people start to pull back, there's going to be a dire impact on us," he says. "It's scary."

The number of people in need of charity is steadily rising, a situation that's sure to get worse as the economy slides and nonprofits' coffers run dry. From 2004 to 2007  when New York's economy was doing well  the number of city residents who used the Food Bank rose 24%. As of 2007, more than 1 out of every 5 New York City children relied on soup kitchens or food pantries, up 48% from 2004. In the developing world, the situation will be even worse. At the United Nations Global Assembly last month, the global-hunger charity Oxfam warned of disastrous consequences for poor countries if the financial crisis affects international aid  which was already down in 2007. Yet at that meeting, French Foreign Minister Bernard Kouchner underlined an uncomfortable reality. "To talk about development or Millennium Goals in the middle of such a crisis is unfair," he said.

That's exactly the sort of recessionary rationalization that charity leaders fear. For now, nonprofits are preparing for winter by paring back on nonessentials, even as they look to expand their base of donors. If the downturn is prolonged, we might see consolidations in the nonprofit sector, just as there have been in the business world. Ultimately, though, Americans will need to depend on the generosity of Americans. And the hopeful surprise is that in past recessions, donations to human services, like feeding the hungry, fell the least; in some downturns, they even rose. "That says something good about us as human beings," says Del Martin, who chairs Giving USA. We'll need a bull market in goodness.